Pursuant to Florida Statute 194.011(3)(d), a petition to a county value adjustment board to challenge the assessment of the value of the taxpayer’s property must be filed no later than 25 days after the Property Appraiser mails out the Notices of Proposed Property Taxes (otherwise known as the TRiM or Truth in Millage Notices). The 2013 filing deadlines for select Florida counties are set forth below:

Property owners who would like to appeal their property tax assessments are faced with two choices in Florida – they can file a petition to the county value adjustment board or they can file a lawsuit in circuit court. Some attorneys contend that filing a VAB petition is a waste of time as the deck is stacked against the petitioner in those proceedings. I disagree, and think that there are pros and cons to both venues. This post will summarize the benefits of filing a VAB petition versus the benefits of going straight to circuit court.

Benefits of Filng a VAB Petition

1. Limited Discovery Available to Property Appraiser. In a circuit court action, both parties have the right to obtain documents from the other side, and to question the opposing parties under oath through written Interrogatories or in a deposition before a court reporter. In a VAB proceeding, however, the Property Appraiser is at a distinct disadvantage in that, while the Property Appraiser’s documents are public records that must be made available upon request, the property owner need not disclose any documents other than the documents they intend to use as evidence. While the Property Appraisers technically have statutory authority to obtain a subpoena for the production of taxpayer records, this mechanism is rarely used, except for very large taxpayers. On the other hand, in a lawsuit, both parties have the ability to obtain documents from each other, including documents that the property owner may not want to produce.

2. Value Disputes Heard by Appraisers. If your dispute is solely a dispute over appraisal methodology and does not involve any complex legal issues, the VAB can be a good choice of venue, as value disputes in larger counties are heard by licensed appraisers, as opposed to judges, who may have very little knowledge of appraisal theories and concepts.

3. Attorneys Not Required. Normally, corporations, LLC and other such entities must be represented by an attorney. However, in VAB proceedings, taxpayers are allowed to be represented by an unlicensed agent if they desire. Please note, however, that testimony at a VAB hearing is recorded and may be used against you in a later court case. Thus, if you think there is any chance that you might want to take the case to court, it would be advisable to be represented by counsel at your VAB hearing.

4. Lower Costs. The fee for filing a VAB petition is much lower than the cost of filing a circuit court action. Also, for those who desire legal counsel, most attorneys will handle VAB petitions on a flat fee or contingent fee basis.

Benefits of Filing a Circuit Court Action

1. Power to Subpoena Witnesses. One of the most important benefits of a circuit court action is that, in a court proceeding, your attorney can subpoena witnesses to testify on your behalf and can depose adverse witnesses prior to trial. Thus, testimony and evidence that may be unobtainable in a VAB proceeding can sometimes by compelled in a court proceeding.

2. More Preparation Time. In a VAB proceeding, the Clerk is only required to give you 25 days’ notice of the hearing and, in many smaller counties, the hearings are held very soon after the deadline for VAB petitions has expired. Thus, if you need more than a few weeks to prepare your case, VAB is probably not the best venue for you.

3. Cases Heard by Judge. If your case involves a complex legal or evidentiary issue, you may be better off taking your case to circuit court, where it will be decided by a judge. In contrast, value disputes before VABs are heard by either an appraiser or, in smaller counties, by the value adjustment board itself, which may not include anyone with a legal background.

4. Flexibility in Scheduling. One of the biggest disadvantages of the VAB process is the lack of flexibility in the scheduling of hearings. In small counties, the VAB may only have two meeting dates available for your hearing. In larger counties that hold hearings in front of special magistrates, the Clerk generally will not consult with the petitioner before scheduling the hearing and, once a hearing is scheduled, it can only be re-scheduled once, unless the petitioner shows good cause. In court cases, on the other hand, the parties’ attorneys coordinate the scheduling of hearings around the parties’ schedules and hearings may be rescheduled even without good cause.

5. Time to Present Case. Finally, if you have multiple witnesses and boxes of exhibits to present, a VAB hearing may not be a good venue, as only a limited amount of time is allocated to each petitioner.

Conclusion

As a general rule, cases involving multiple witnesses and complex legal issues should probably be filed in circuit court. However, even in those cases, there may be a benefit to filing a VAB petition if you would prefer to have your case heard by a licensed appraiser or if you are concerned about being forced to turn over confidential business documents in discovery. For simpler cases, filing a VAB petition can be an inexpensive way to challenge a property tax assessment without waiving your right to file a circuit court action if you are unsuccessful before the VAB.

Taxpayers who file Value Adjustment Board petitions in 2011 must now make sure that they pay their taxes before they become delinquent. The newly-enacted Fla. Stat. 194.014, which took effect on July 1, 2011, requires taxpayers who file VAB petitions to pay all non ad valorem taxes and at least 75% of their ad valorem taxes before they become delinquent. Likewise, taxpayers who challenge the denial of an exemption or classification or a determination that their improvements were substantially complete must pay all non ad valorem taxes and the amount of ad valorem taxes that they admit in good faith to be owing. In Florida, property taxes become delinquent if not paid by April 1st of the next year. Thus, if a taxpayer fails to pay their 2011 property taxes by April 1, 2012, the VAB is required to automatically deny their petition on that property.

What is not clear from the new statute is whether a taxpayer’s failure to pay its taxes before they become delinquent will also result in the dismissal of cases pending before the VAB from prior years. Fla. Stat. 194.171(5), which applies to property tax cases in circuit court, requires the court to dismiss all pending cases if the taxes on the property in question become delinquent in any future tax year. In some larger Florida counties, VAB cases are sometimes not resolved until several years after they are filed. Thus, depending on how the statute is interpreted by the VABs, taxpayers whose taxes become delinquent in those counties could risk having all of their prior years’ pending VAB cases denied.

There is one silver lining for taxpayers, though. The new statute also provides that, if a petitioner is entitled to a refund due to the granting of their VAB petition, the amount of taxes overpaid will accrue interest at the rate of 12% per year from the date the taxes would have become delinquent.

A Florida Administrative Law Judge issued a Summary Final Order in Turner v. Dep’t of Revenue, finding that the Florida Department of Revenue’s advisory bulletins and Value Adjustment Board training materials are not binding on VABs or Special Magistrates, and that Rule 12D-9.020 contravenes Florida law to the extent that it provides that the disclosure of evidence by a VAB petitioner is optional.

Earlier this year, several county Property Appraisers filed a legal challenge to the Florida Department of Revenue’s 2010 Value Adjustment Board training materials and Property Tax Oversight Bulletin 11-01, contending that the materials were improperly-promulgated administrative rules that were contrary to the requirements of the Florida Constitution and statutes. The Property Appraisers’ primary areas of concern were the DOR’s statements that the Higgs v. Good case did not apply to VABs, its statement that the petitioner has the option of initiating an evidence exchange, and its indication that a “costs of sale” adjustment under Fla. Stat. 193.011(8) should be made to values calculated by the cost and income approach, as well as the sales comparison approach.

On June 22, 2011, the Judge ruled that the bulletins and training materials do not constitute invalid, unpromulgated rules because the “value adjustment boards and their magistrates are not required to apply – and therefore possess the discretion to deviate from – the legal principles enunciated within the materials when conducting VAB hearings.” In support of their contention that the materials should be treated as administrative rules and thus be subject to the same promulgation procedures, the Property Appraisers had submitted evidence that certain VABs and Special Magistrates had perceived the bulletins and training materials as being mandatory. However, the Judge found that, regardless of the perception of those individuals, the DOR has no authority to enforce its bulletins or the statements in the training materials and that they were merely non-binding recommendations that the VABS and Special Magistrates were not required to adhere to.

The Judge also ruled that the DOR’s Rule 12D-9.020 was contrary to Fla. Stat. 194.011, Fla. Stat, which requires the VAB petitioners to disclose their evidence at least 15 days before the VAB hearing. However, the effect of this part of the ruling appears to be nominal, since the Judge also acknowledged that the only penalty for the petitioner’s failure to disclose its evidence is that the Property Appraiser is not required to disclose its evidence to the petitioner. Thus, the effect on the requirements for exchange of evidence between the parties is essentially nil. Basically, if the Property Appraiser requests documentation, that documentation must be provided 15 days before the hearing or it may not be admitted into evidence. But as to evidence not requested by the Property Appraiser, the Petitioner only needs to disclose that evidence if they would like to see the Property Appraiser’s evidence before the hearing.

Florida property is required to be assessed at 100% of just value, which has been deemed equivalent to fair market value. So why do the Property Appraisers sometimes deduct 15% for the “first and eighth”? And does the Department of Revenue’s new bulletin require 15% to be deducted from the values of all property? This post will briefly explain the first and eighth criteria of section 193.011, Fla. Stat., when those factors apply, what “costs of sale” may be deducted, and why a 15% deduction is commonly used.

What are the “first and eighth factors”?

The phrase “the first and eighth” refers to subsections (1) and (8) of Fla. Stat. 193.011. Fla. Stat. 193.011 sets forth the eight factors that must be properly considered by the Property Appraiser in assessing property for tax purposes. Subsection (1) requires the Property Appraiser to consider “the present cash value of the property, which is the amount a willing purchaser would pay a willing seller, exclusive of reasonable fees and costs of purchase, in cash or the immediate equivalent thereof in a transaction at arm’s length.” The relevant portion of subsection (8) requires the Property Appraiser to consider “the net proceeds of the sale of the property, as received by the seller, after deduction of all of the usual and reasonable fees and costs of the sale, including the costs and expenses of financing, and allowance for unconventional or atypical terms of financing arrangements.” Although these subsections contemplate consideration of a variety of information, the phrase “first and eighth” generally refers to the requirement that the Property Appraiser consider the costs of purchase and the costs of sale.” In Turner v. Tokai Financial Services, the court explained that while subsection (1) contemplates the transaction from the buyer’s perspective and excludes fees and costs incurred by the buyer in addition to the purchase price, subsection (8) excludes the reasonable fees and costs that the seller would pay out of the proceeds received from the buyer.

Do the first and eighth criteria apply to both real and personal property?

Although some of the factors of section 193.011 are undoubtedly more relevant to appraisals of real property, the Tokai court held that, despite some legislative history to the contrary, because Fla. Stat. 193.011 is not expressly limited to real property, it should be interpreted as applying to both real and personal property.

What “costs of sale” should be deducted?

For real property, the Supreme Court of Florida has construed the phrase “reasonable fees and costs of sale” to include only those fees and costs typically associated with the closing of a sale of real property, such as reasonable attorney’s fees, broker’s commissions, appraisal fees, documentary stamp costs, survey costs and title insurance costs. Determinining the costs of sale of tangible personal property can be a bit more challenging. In Tokai, the court adopted the taxpayer’s market approach value for its used equipment, but rejected the taxpayer’s request for a 20% cost of sale deduction for sales commissions, advertising, warranties, delivery, installation and product demonstration, finding that such expenses were internal expenses, rather than external “costs of sale.” For tangible property assessed by the cost approach, the Supreme Court later held in the Walmart case that sales tax should not be deducted as a cost of sale, because it is a generally accepted appraisal practice to include acquisition costs such as sales tax, freight and installation in the original cost when performing a cost approach valuation.

Does the “costs of sale” adjustment apply to values determined by the cost approach and income approach?

This, of course, is the hot question of the day. Years ago, the court held in Bystrom v. Equitable Life Assur. Society that a costs of sale adjustment to a value arrived at by the income approach was improper because subsection (8) could only be applied if there had been an actual sale of the property. Fast forward to January 2011, when the Florida Department of Revenue issued PTO Bulletin 11-01 , advising all county value adjustment boards that they may make cost of sale adjustments to values determined by any of the three traditional approaches (cost, income, or sales comparison). This came on the heels of the DOR issuing VAB training materials that indicated that the eighth factor should result in a value less than fair market value.

Many Property Appraisers take issue with the DOR’s interpretation and contend that it contravenes established Florida law. Hillsborough County Property Appraiser Rob Turner has filed a challenge to the DOR’s VAB training materials, asking that they be deemed invalid. The Clay County Property Appraiser and the Florida Association of Property Appraisers have joined in that action. A separate rule challenge was also recently filed by the Property Appraisers of Alachua, Monroe and Okaloosa counties. Also, the DOR’s bulletin, even if accepted and followed by the Property Appraisers, is carefully phrased to only require the VABs to make an eighth criterion adjustment “when justified by sufficiently relevant and credible evidence.” Thus, absent a directive from the courts, it is doubtful that taxpayers will suddenly see lower assessments as a result of this bulletin, although it may provide them with an additional argument to be raised in VAB hearings.

Is the “cost of sale” adjustment always 15%?

Under the law, the Property Appraisers are only required to make such adjustments as are justified by the facts, and those adjustments may be higher or lower than 15%. In the past, some county property appraisers were called out by the courts for unfairly assessing property at a level of assessment that was less than 100% of just value. Thus, in reviewing each county’s tax roll, the DOR conducts sales ratio studies to ensure that the county property appraisers are sincerely attempting to reflect the full fair market value of the property in their jurisdiction. In conducting those studies, the DOR generally assumes a 15% adjustment for costs of sale and uses those adjusted values to evaluate the fairness of the county’s tax roll. Also, every year the Property Appraisers must submit Form DR-493 to the DOR to notify the DOR of the “costs of sale” adjustments made to each type of property in their county, and Rule 12D-8.002(4) requires them to submit documents justifying any adjustments in excess of 15%.

The confusion tends to arise because the certifications made by the Property Appraiser relate to the adjustments made in their mass appraisal process. Thus, while a Property Appraiser may certify that they made a 15% adjustment during the mass appraisal process, if a taxpayer challenges their assessment, the Property Appraiser may prepare a fee appraisal using all three approaches to value, and may or may not make similar adjustments in each approach. However, while the Property Appraisers may take issue with the DOR’s bulletin, the bulletin seems to suggest that if a Property Appraiser has certified that they used a 15% adjustment on Form DR-493, the VAB would be justified in making a 15% adjustment to any values that do not affirmatively appear to include such a deduction. Until the courts weigh in, this will likely continue to be a hotly contested issue before the VABs and the courts.

Just when I think I know everything there is to know about property tax appeals, they go and change the rules on me again. VAB season should be interesting this year, given all of the new policies and procedures promulgated by the Florida Department of Revenue and its infamous (and at times puzzling) 2010 Value Adjustment Board Training materials that are required reading for all VAB Special Magistrates in Florida. Below is a quick summary of some interesting administrative changes that are included in the new Rules and the VAB Training materials.

Good Cause for Late VAB Petitions

The DOR has now included a definition of “good cause.” According to Rule 12D-9.015(11)(a), “good cause” means the verifiable showing of extraordinary circumstances. Examples given by the DOR include a personal, family or business crisis, or a physical or mental illness, infirmity or disability that would reasonably affect the petitioner’s ability to timely file, as well as miscommunications with the Board Clerk, Property Appraiser or their staff regarding the filing time.

Agents for Taxpayers

Rule 12D-9.018(3) clarifies that a taxpayer may be represented by anyone, including a family member, and that the agent need not be a licensed individual. However, a petition filed by an unlicensed agent must be signed by the taxpayer or be accompanied by a written authorization from the taxpayer.

Rescheduling Hearings

Florida Statute 194.032(2) allows a petitioner to reschedule a hearing one time without good cause. In my experience last year, some Value Adjustment Board Clerks interpreted this section as only allowing the petitioner to request one rescheduling, regardless of whether they had a conflict or other good cause. Rule 12D-9.019 clarifies that a rescheduling for good cause shall not be treated as the one time rescheduling to which a petitioner has a right upon timely request under Fla. Stat. 194.032(2). This Rule also clarifies that if a hearing is rescheduled, the deadlines for the exchange of evidence shall be computed from the new hearing date, if time permits.

Effect of Failure to Provide Income Data/Higgs v. Good

Higgs v. Good is, of course, the case that held that where a taxpayer refused to provide his income data to the Property Appraiser when the Property Appraiser was trying to prepare the tax roll, the taxpayer could not later use that data in an administrative or judicial challenge to their property tax assessment (yes, the case did expressly say “administrative or judicial”). Thus, the DOR has created quite a stir by stating in its 2010 VAB Training materials that “the case of Higgs v. Good does not apply to proceedings of the value adjustment board.”

Note, however, that Fla. Stat. 194.034 still prohibits the VAB from accepting evidence if the Property Appraiser requested it from the petitioner in connection with the VAB proceeding and the petitioner had knowledge of it, but declined to provide it to the Property Appraiser. If such a request is made by the Property Appraiser (and it always is), Rule 12D-9.020(8) deems the petitioner’s evidence timely if it is submitted at least 15 days before the hearing. If submitted less than 15 days before the hearing, it is still considered timely if the VAB finds that it was provided a reasonable time before the hearing.

Order of Presentation of Evidence

Rule 12D-9.024(7) clarifies that the Property Appraiser should present their evidence first in a hearing involving a value dispute. Presumably, the taxpayer would still present their evidence first in exemption and classification hearings. However, if the parties agree, the Special Magistrates generally prefer for the Property Appraiser to state their reasons for denial of an exemption before the taxpayer presents their case.

Applicability of Rules of Evidence

Rule 12D-9.025(2)(a) provides that VAB proceedings are not to be controlled by strict rules of evidence and procedure. However, while formal rules of evidence do not apply, fundamental due process shall be observed and shall govern the proceedings. The VAB Training materials further state that the VABs must not apply strict standards of relevance or materiality in deciding whether to admit evidence into the record, and that any decisions to exclude evidence must not be arbitrary or unreasonable.

In practice, what this likely means is that the VABs should give the parties a bit of leeway when their evidence is challenged on relevance or materiality grounds. However, parties should still be wary about relying on hearsay to prove their case (such as affidavits or appraisals by persons not present at the hearing). The Rules specifically allow petitioners to notify the VAB on their petition that they do not intend to appear, but that they would like their evidence considered anyway. In such situations, Rule 9.024(11) states that the VAB must take into consideration the inability of the opposing party to cross-examine the non-appearing party in determining the sufficiency of the evidence.

Applicability of USPAP

Florida Statute 194.301 now requires the Property Appraiser to comply with “professionally accepted appraisal practices.” Some (including me) had speculated that these “practices” could be construed to include the Uniform Standards of Professional Appraisal Practice [“USPAP”]. Not so, however, as the DOR’s 2010 VAB Training materials have instructed the VABs and Special Magistrates that they are not authorized to determine whether a party is required to comply with USPAP or whether their evidence complies with USPAP.

The Eighth Factor (Costs of Sale)

Another issue that has many people scratching their heads is the DOR’s discussion of “the eighth criterion” in the VAB Training materials. The materials seem to suggest that where the Property Appraiser has reported to the DOR on Form DR-493 a certain percentage adjustment for the eighth criterion of Fla. Stat. 193.011, but has not made such an adjustment to the petitioned property, the VAB should go ahead and make that adjustment. Thus, it would seem that the DOR is advising the VABs to ensure that the same adjustment is made to all properties, regardless of the approach used to calculate the assessment and regardless of whether it would result in an assessment at less than fair market value. I expect that the DOR will be receiving questions from many people about this, and hopefully further clarification will be forthcoming.

Working Waterfront Properties

The VAB Training materials clarify that, despite the legislature’s failure to pass implementing legislation, the constitutional provisions relating to working waterfront properties do apply in 2010, and the DOR anticipates issuing rules later in the summer of 2010.

Electronic Hearings

Finally, the new Rules allow for electronic hearings if the VAB approves of their use and the special magistrate agrees. Procedures for the use of electronic hearings are set forth in Rule 12D-9.026.

July 1st is the Property Appraisers’ deadline to notify land owners that they are denying their application for an agricultural classification. Thus, this post will discuss common reasons for denial of an agricultural classification (sometimes referred to as a “greenbelt exemption” or “greenbelt classification”) and the procedures for appealing such a denial.

Why was my agricultural classification denied?

Probably the most common reason for an agricultural classification to be denied is the owner’s failure to file an application by the statutory deadline. Pursuant to Fla. Stat. 193.461(3), an application for agricultural classification must be filed with the Property Appraiser by March 1st of the tax year for which the classification is sought. Failure to file an application by March 1st constitutes a waiver of the classification privilege for that year. If an application is filed after March 1st and the taxpayer demonstrates particular extenuating circumstances for the late filing, the Property Appraiser may go ahead and grant the classification. However, if the Property Appraiser denies the classification, the taxpayer would need to file an appeal to the Value Adjustment Board.

Other than tardy applications, the most common reasons for denial of an agricultural classification are probably the size of the property and the failure of the owner or lessee to care for the land using accepted commercial agricultural practices. To qualify for an agricultural classification, the property must be used primarily for bona fide agricultural purposes, which has been defined as “good faith commercial agricultural use of the land.” This does not mean that the operation must be profitable, but it does mean that a parcel that is too small to be commercially viable or that is overgown with weeds will probably not qualify.

Qualifying for an agricultural classification also requires good communication between the owner and any lessees. It is fairly common for an owner/developer to lease their land to a cattleman or farmer for a nominal amount in the hopes that the property will qualify for an agricultural classification while the owner waits to develop or re-sell the property. However, if questions arise about the use of the property, the owner must ensure that the lessee promptly responds to any questions or document requests from the Property Appraiser’s office or the owner may be faced with a denial letter.

Appealing to the Value Adjustment Board

The most common way to appeal the denial of an agricultural classification is by filing a petition to the county Value Adjustment Board. The petition, which can be found by clicking here, must be filed with the Clerk of the Value Adjustment Board (in the Clerk of Court’s office) no later than 30 days after the Property Appraiser mailed the notice of denial. In small counties, the petition will be heard before the full Value Adjustment Board, which consists of two members of the county commission, one school board member, and two citizen members. In larger counties, the petition will be heard by an attorney Special Magistrate, whose recommendations will be either approved or rejected by the full VAB. Taxpayers who do not prevail before the VAB may take a further appeal to the local circuit court, but that appeal must be filed within 60 days of the VAB decision.

Appealing Directly to the Circuit Court

Taxpayers also have the option of taking their dispute directly to circuit court, without going before the VAB. A circuit court action to challenge the denial of an agricultural classification must be filed within 60 days of the certification of the tax roll by the Property Appraiser. Also, in order to file a circuit court action, the taxpayer must pay the taxes in full, or at least pay the amount they admit in good faith to be owning (the amount they would owe if they were granted the agricultural classification). Failure to pay the property taxes for the year in dispute and any subsequent years will likely result in dismissal of the case for lack of jurisdiction pursuant to Fla. Stat. 194.171.